Identifier
Created
Classification
Origin
08TIRANA653
2008-08-26 15:15:00
CONFIDENTIAL//NOFORN
Embassy Tirana
Cable title:
IS ALBANIA FACING A BANKING CRISIS?
how-toVZCZCXYZ0006 PP RUEHWEB DE RUEHTI #0653 2391515 ZNY CCCCC ZZH P 261515Z AUG 08 ZDK FM AMEMBASSY TIRANA TO RUEHC/SECSTATE WASHDC PRIORITY 7390 INFO RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
C O N F I D E N T I A L TIRANA 000653
SENSITIVE
SIPDIS
DEPT FOR EUR/SCE JISMAIL, TREASURY FOR VIMAL ATUKORALA
E.O. 12958: DECL: 08/26/2018
TAGS: EFIN ECON AL
SUBJECT: IS ALBANIA FACING A BANKING CRISIS?
Classified By: A/DCM Paul Poletes, reasons 1.4 (b),(d)
Summary
-------
C O N F I D E N T I A L TIRANA 000653
SENSITIVE
SIPDIS
DEPT FOR EUR/SCE JISMAIL, TREASURY FOR VIMAL ATUKORALA
E.O. 12958: DECL: 08/26/2018
TAGS: EFIN ECON AL
SUBJECT: IS ALBANIA FACING A BANKING CRISIS?
Classified By: A/DCM Paul Poletes, reasons 1.4 (b),(d)
Summary
--------------
1. (C) Despite slowing economic growth in the U.S. and EU,
Albania continues to report a six percent GDP growth.
However, one prominent Albanian banker worries that the
rapidly rising number of non-performing retail loans could
soon lead to bank failures and consolidations and weaken the
banking system. Albanian Central Bank officials, however,
are not concerned. They point to increasing profitability of
the banking system, adequate bank capitalization, and the
fact that the number of Albanian non-performing loans is
still lower than some other countries in the region. End
Summary.
Bad Loans - Also An Albanian Problem?
--------------
2. (C) While the rest of the world grapples with the credit
crunch from bad real estate loans, Albania's economy
continues to grow at a robust six percent. Although Albania
has not experienced a real estate bubble brought on by loose
lending standards, Lorenzo Roncari, CEO of American Bank of
Albania (one of Albania's largest banks),expressed concern
that the sixteen Albanian banks, in an effort to gain market
share, have been overly aggressive in the consumer lending
market while raising deposit interest rates to attract new
clients. Some banks are even offering short-term unsecured
loans at a lower interest rate than they offer their
depositors.
3. (C) According to statistics of Albania's Central Bank
(CB),four percent of all loans are classified as
non-performing, which is high by western standards. In
addition, seven of Albania's sixteen banks have reported
losses during the first half of this year. Five of those are
now at minimum capitalization while two are below. The
problem may get worse since banks have no practical way to
force delinquent retail borrowers to pay up. Roncari sees
these trends as alarming, and described an Albanian banking
system "in serious trouble."
Perhaps a Short Term Problem
--------------
4. (SBU) The banks are simply trying to get their share of
Albania's huge remittance inflow, cash sent home from workers
in the U.S. and Europe. Albanians still distrust the banking
system, and memories of the collapse of the pyramid schemes
are fresh in their minds. Instead, they have been putting
their cash into real estate, sparking Albania's incredible
construction boom. Since the banks have been very
conservative in their mortgage lending, usually requiring a
30 percent down payment, there is little danger of a
bubble-induced credit crunch.
The CB Is Not Worried
--------------
5. (C) Officials at the Central Bank disagreed with Roncari's
gloomy assessment of the banking system. Regarding consumer
loans, the head of the Supervision Department told the
Embassy that these rates are short-term promotions and
clients must generally satisfy certain criteria to receive
the most favorable interest rates. He criticized the banks
for placing somewhat misleading advertising to draw in
customers, but said that the banking sector's profitability
increased during the first half of 2008 over 2007. He added
that other important indicators the CB watches closely, such
as return on equity and capital adequacy, have either
improved or are within an allowable range. And while the
percentage of non-performing loans has increased, it is still
well below Macedonia at 6.4 percent and Serbia at 22 percent.
Comment
--------------
6. (C) Despite Roncari's grim prognosis, the Albanian banking
system as a whole seems healthy ) a view strongly shared by
the Central Bank. Most Albanian commercial banks have a
foreign parent which will not let them get into too much
trouble. Also, the CB seems to be doing its job well and has
remained politically independent while monitoring critical
parameters to keep the public from once again losing
confidence in the banking system.
CRISTINA
SENSITIVE
SIPDIS
DEPT FOR EUR/SCE JISMAIL, TREASURY FOR VIMAL ATUKORALA
E.O. 12958: DECL: 08/26/2018
TAGS: EFIN ECON AL
SUBJECT: IS ALBANIA FACING A BANKING CRISIS?
Classified By: A/DCM Paul Poletes, reasons 1.4 (b),(d)
Summary
--------------
1. (C) Despite slowing economic growth in the U.S. and EU,
Albania continues to report a six percent GDP growth.
However, one prominent Albanian banker worries that the
rapidly rising number of non-performing retail loans could
soon lead to bank failures and consolidations and weaken the
banking system. Albanian Central Bank officials, however,
are not concerned. They point to increasing profitability of
the banking system, adequate bank capitalization, and the
fact that the number of Albanian non-performing loans is
still lower than some other countries in the region. End
Summary.
Bad Loans - Also An Albanian Problem?
--------------
2. (C) While the rest of the world grapples with the credit
crunch from bad real estate loans, Albania's economy
continues to grow at a robust six percent. Although Albania
has not experienced a real estate bubble brought on by loose
lending standards, Lorenzo Roncari, CEO of American Bank of
Albania (one of Albania's largest banks),expressed concern
that the sixteen Albanian banks, in an effort to gain market
share, have been overly aggressive in the consumer lending
market while raising deposit interest rates to attract new
clients. Some banks are even offering short-term unsecured
loans at a lower interest rate than they offer their
depositors.
3. (C) According to statistics of Albania's Central Bank
(CB),four percent of all loans are classified as
non-performing, which is high by western standards. In
addition, seven of Albania's sixteen banks have reported
losses during the first half of this year. Five of those are
now at minimum capitalization while two are below. The
problem may get worse since banks have no practical way to
force delinquent retail borrowers to pay up. Roncari sees
these trends as alarming, and described an Albanian banking
system "in serious trouble."
Perhaps a Short Term Problem
--------------
4. (SBU) The banks are simply trying to get their share of
Albania's huge remittance inflow, cash sent home from workers
in the U.S. and Europe. Albanians still distrust the banking
system, and memories of the collapse of the pyramid schemes
are fresh in their minds. Instead, they have been putting
their cash into real estate, sparking Albania's incredible
construction boom. Since the banks have been very
conservative in their mortgage lending, usually requiring a
30 percent down payment, there is little danger of a
bubble-induced credit crunch.
The CB Is Not Worried
--------------
5. (C) Officials at the Central Bank disagreed with Roncari's
gloomy assessment of the banking system. Regarding consumer
loans, the head of the Supervision Department told the
Embassy that these rates are short-term promotions and
clients must generally satisfy certain criteria to receive
the most favorable interest rates. He criticized the banks
for placing somewhat misleading advertising to draw in
customers, but said that the banking sector's profitability
increased during the first half of 2008 over 2007. He added
that other important indicators the CB watches closely, such
as return on equity and capital adequacy, have either
improved or are within an allowable range. And while the
percentage of non-performing loans has increased, it is still
well below Macedonia at 6.4 percent and Serbia at 22 percent.
Comment
--------------
6. (C) Despite Roncari's grim prognosis, the Albanian banking
system as a whole seems healthy ) a view strongly shared by
the Central Bank. Most Albanian commercial banks have a
foreign parent which will not let them get into too much
trouble. Also, the CB seems to be doing its job well and has
remained politically independent while monitoring critical
parameters to keep the public from once again losing
confidence in the banking system.
CRISTINA